In the first of a five-part series analyzing the role of money within capitalist society, Adam Booth looks at the origins of money, associated with the rise of commodity production and of class society.

“The love of money,” the Bible tells us, “is the root of all kinds of evil” (1 Timothy 6:10). After the financial crash of 2008 and the subsequent global economic crisis that continues to plague society today, it is hard not to empathize with these words from The Good Book.

Similar language is repeated in The Ragged Trousered Philanthropists, the early 20th-century novel by Robert Tressell, which is often considered a modern-day bible for the labor movement. In this fictionalized account of the lives of the working class, the protagonist, a socialist called Frank Owen, asserts to his incredulous peers that, “Money is the principal cause of poverty.” (Robert Tressell, The Ragged Trousered Philanthropists, Wordsworth Classics edition, 175.)

Owen valiantly attempts to explain further to his fellow workers how, “while the present Money System remains, it will be impossible to do away with poverty, for heaps in some places mean little or nothing in other places. Therefore while the money system lasts we are bound to have poverty and all the evils it brings in its train.” (ibid, 284.)

The present Money System prevents us from doing the necessary work, and consequently causes the majority of the population to go short of the things that can be made of work. They suffer want in the midst of the means of producing abundance. They remain idle because they are bound and fettered with a chain of gold. (ibid, 286.)

This systematic robbery has been going on for generations, the value of the accumulated loot is enormous, and all of it, all the wealth at present in the possession of the rich, is rightly the property of the working class—it has been stolen from them by the means of the Money Trick. (ibid, 299.)

Money, then, as Tressell states through the medium of his hero Owen, appears to us a mystical force; a “chain of gold” that tethers the vast majority of the population to a life of toil and misery; a great “trick” that swindles the working class of the wealth that they have created. We see it all around us, ubiquitous and abundant; and yet, amidst this plenty we find universal want. Within this “Money System,” all our needs become relegated to the need for money—in the words of the Bard, “Thou common whore of mankind.” (William Shakespeare, Timon of Athens, Act IV, Scene 3.)

Whether it is the monetary policies of central banks, such as the euphemistically named Quantitative Easing; the financial alchemy taking place inside the glass towers of Canary Wharf and the City of London; or the utopian alternatives offered by digital currencies such as Bitcoin, for most people, the workings of the modern money system are shrouded in mystery.

As with all such revered idols in class society, however, whether it be the gods and religion, or the Law and the State, by applying the method of Marxism—that is to say, a dialectical and materialist analysis of history and society—we can understand and explain the origins, evolution, and development of money. It doing so, we can strip away the mysticism of this seemingly omnipotent power and understand the solution to removing its grip over us.

Primitive communism

Studying history, we see that money did not always exist, but is tied to the development of class society and, in particular, of commodities—that is, of goods produced not for individual or common consumption, but for exchange. For Marx, the key to understanding the question of money therefore lay in analyzing the historical development of commodity production and exchange. “The riddle of the money fetish,” Marx states in his magnum opus, Capital, “is therefore the riddle of the commodity fetish, now become visible and dazzling to our eyes.” (Karl Marx, Capital, Volume One, Penguin Classics edition, 187.)

Basing himself on the works of the pioneering 19th-century American anthropologist Lewis H. Morgan, Friedrich Engels—Marx’s cofounder of the ideas of scientific socialism—analyzed the earliest forms of human society, demonstrating in his classic text, The Origin of the Family, Private Property, and the State, how social classes of exploiters and the exploited had not always existed. Instead, Engels explained, early societies were generally based on “gens,” or tribes, within which there was communal ownership over the tools and products.

Such communities, therefore, were a form of “primitive communism,” where there was no exchange between individuals, but rather production for the common good, and consumption on the basis of need. At the same time, this “communism” was “primitive” since it was on the basis of a general scarcity, resulting from a low level of productivity, technology, and culture.

For example, in his recent book on Debt: the First 5,000 Years, David Graeber, the modern US anthropologist, cites the example given by his predecessor Morgan of the Iroquois gens, a group of Native American tribes whose societal structure Engels also drew upon in his works. “By the mid-[19th] century,” Graeber notes, “Lewis Henry Morgan’s descriptions . . . made clear that the main economic institution among the Iroquois nations were longhouses where most goods were stockpiled and then allocated by women’s councils, and no one ever traded arrowheads for slabs of meat.” (David Graeber, Debt: the First 5,000 Years, Melville House Publishing, 2014 paperback edition, 29.)

Elsewhere, as the author Felix Martin notes in his book, Money: the Unauthorised Biography, in the earliest known civilizations that developed around the Mesopotamian rivers of the Tigris and the Euphrates—in what is modern-day Iraq—money did not exist either. It was here in ancient Mesopotamia that the techniques of irrigation and agriculture were invented and—in turn—the formation of the first cities began, such as the “great metropolis” of Ur. “By the beginning of the second millennium BC,” Martin states, “more than sixty thousand people lived within the city itself . . . thousands of hectares of land were under cultivation . . . and hundreds more were devoted to dairy farming and sheep herding.” (Felix Martin, Money: the Unauthorised Biography, Vintage Publishing, 2014 paperback edition, 38.)

In such urban economies, Martin explains, in place of money we instead find a system of top-down planning and accounting, managed by a bureaucratic caste, in which all produce would be kept in the city’s stores (often royal palaces and temples), with inscribed tablets used to keep records; “a complex economy governed according to an elaborate system of economic planning that would be familiar to a manager in a modern multinational corporation.” (ibid, 44.)

Whether it be the primitive communism of the Iroquois gens or the bureaucratic planning seen in Mesopotamian cities, therefore, such examples clearly demonstrate how money—and all its associated “evils”—is not a timeless eternal truth. To understand what money is and where it has come from, we must analyze the qualitative transformation in the social relations that took place within society thousands of years ago.

The rise of money

Early Greek societies—as described in the epic poems of Homer, such as the Iliad and the Odyssey—were, like the Iroquois, based around gens, with common ownership over the productive forces and resultant products. Felix Martin describes how, “For the provision of the most basic needs—food, water, and clothing . . . it was essentially an economy of self-sufficient households in which the individual tribesman subsisted on the produce of his own estate.” (ibid, 35.)

In addition to this economy of individual subsistence, Martin continues, were “three simple mechanisms for organizing society in the absence of money—the interlocking institutions of booty distribution, reciprocal gift-exchange, and the distribution of the sacrifice,” which were “far from unique to Dark Age Greece. Rather, modern research in anthropology and comparative history has shown them to be typical of the practices of small-scale, tribal societies.” (ibid, 36–37.)

The historical turning point, Engels explains in The Origin of the Family, Private Property, and the State, occurred with the development of private ownership over the means of production, and the associated conversion of communal products into commodities.

The rise of private property in herds and articles of luxury led to exchange between individuals, to the transformation of products into commodities. And here lie the seeds of the whole subsequent upheaval. When the producers no longer directly consumed their product themselves, but let it pass out of their hands in the act of exchange, they lost control of it. They no longer knew what became of it; the possibility was there that one day it would be used against the producer to exploit and oppress him. For this reason no society can permanently retain the mastery of its own production and the control over the social effects of its process of production unless it abolishes exchange between individuals.

The process that Engels describes initially develops, not internally within the community, but at the fringes of a given society with the trade of surplus products between different tribes. Such trade, however, sets the wheels of commodity production exchange in motion, later rebounding to spread internally, reinforce private ownership, and accelerate the dissolution of communal bonds.

With the development of commodity production and exchange came the expansion of trade; and with growing trade came the emergence of the money commodity—a universal equivalent that could act as a means of exchange, facilitating trade over longer distances; a single commodity that acts as a yardstick of measurement, against which all others could be compared.

Such a process does not come about consciously or in a planned manner, but arises out of the needs of society to expand trade and the market. The initial commodity that is elevated to the status of this universal equivalent is largely accidental, in a historical sense; nevertheless, it is rooted in the material needs of that society, and is generally—in the earliest stages—that which is considered the most important commodity to the particular society in question. As Marx notes in Capital,

What appears to happen is not that a particular commodity becomes money because all other commodities express their values in it, but, on the contrary, that all other commodities universally express their values in a particular commodity because it is money. (Marx, op. cit., 187.)

For example, in the case of the Native American tribes, Engels explains, it was cattle that emerged as the money commodity:

Originally tribes exchanged with tribe through the respective chiefs of the gens; but as the herds began to pass into private ownership, exchange between individuals became more common, and, finally, the only form. Now the chief article which the pastoral tribes exchanged with their neighbors was cattle; cattle became the commodity by which all other commodities were valued and which was everywhere willingly taken in exchange for them—in short, cattle acquired a money function and already at this stage did the work of money. With such necessity and speed, even at the very beginning of commodity exchange, did the need for a money commodity develop. (Engels, op. cit., chapter IX.)

The expansion and growth of trade in ancient Greece, however, led to the need for a money commodity that was portable over longer distances. For this reason, we see, beginning in Greece in the late 6th century BCE, the emergence of coinage, with the use of precious metals—such as gold and silver—as money.

The beneficial material properties of such metals for use as money are clear: they are generally homogeneous and uniform in their quality—one lump of gold is much the same as any other; they are easily divisible (or combinable) into different amounts, and can thus be used to easily represent different quantities of value; they are durable and therefore do not deteriorate and lose value, thus enabling them to be a store of value; and, most importantly, they have a high density of value, with small amounts of precious metal being equivalent to a large quantity of other, less valuable, commodities. Gold, therefore, is money not because of its revered esthetic qualities, but is considered to be esthetical pleasing because it is money.

The rise of money and coinage was, as Engels explains, associated also with the increasing division of labor within class society, and the emergence of “a class which no longer concerns itself with production, but only with the exchange of the products—the merchants.”

Now for the first time a class appears which, without in any way participating in production, captures the direction of production as a whole and economically subjugates the producers; which makes itself into an indispensable middleman between any two producers and exploits them both. Under the pretext that they save the producers the trouble and risk of exchange, extend the sale of their products to distant markets and are therefore the most useful class of the population, a class of parasites comes into being, “genuine social ichneumons,” who, as a reward for their actually very insignificant services, skim all the cream off production at home and abroad, rapidly amass enormous wealth and correspondingly social influence, and for that reason receive under civilization ever higher honors and ever greater control of production, until at last they also bring forth a product of their own—the periodical trade crises.”

. . . And with the formation of the merchant class came also the development of metallic money, the minted coin, a new instrument for the domination of the nonproducer over the producer and his production. The commodity of commodities had been discovered, that which holds all other commodities hidden in itself, the magic power which can change at will into everything desirable and desired. The man who had it ruled the world of production—and who had more of it than anybody else? The merchant. The worship of money was safe in his hands. He took good care to make it clear that, in face of money, all commodities, and hence all producers of commodities, must prostrate themselves in adoration in the dust. He proved practically that all other forms of wealth fade into mere semblance beside this incarnation of wealth as such. (ibid.)

Money, then, as Engels explains, is the product of private ownership; the result of an emergent system of commodity production and exchange. Once called into existence, however, money develops its own logic, spreading through social interaction and asserting its cold, callous laws in one sphere of life after another. Money and usury, Engels stated, were “the principal means for suppressing the common liberty,” breaking apart the old communal bonds of the Greek gens, and reinforcing the inequalities and exploitation of the newly emerging class society of the Athenian state.

From here the growing money economy penetrated like corrosive acid into the old traditional life of the rural communities founded on natural economy. The gentile constitution is absolutely irreconcilable with money economy . . . [it] knew neither money nor advances of money nor debts in money. Hence the money rule of the aristocracy now in full flood of expansion also created a new customary law to secure the creditor against the debtor and to sanction the exploitation of the small peasant by the possessor of money . . .

With the coming of commodity production, individuals began to cultivate the soil on their own account, which soon led to individual ownership of land. Money followed, the general commodity with which all others were exchangeable. But when men invented money, they did not think that they were again creating a new social power, the one general power before which the whole of society must bow. And it was this new power, suddenly sprung to life without knowledge or will of its creators, which now, in all the brutality of its youth, gave the Athenians the first taste of its might.

What was to be done? The old gentile constitution had not only shown itself powerless before the triumphal march of money; it was absolutely incapable of finding any place within its framework for such things as money, creditors, debtors, and forcible collection of debts. But the new social power was there; pious wishes, and yearning for the return of the good old days would not drive money and usury out of the world. (ibid, chapter V.)

Credit money

As Engels hints at above, with his reference to the “yearning for the return of the good old days” when “money and usury” did not exist, as long as there has been money there has been credit and debt; and as long as there has been usury, there has been the “forcible collection of debts”—“a new social power . . . before which the whole of society must bow.”

Some monetary theorists, however, try to emphasize that money is—above all—nothing but a system of credits and debts; a set of accounts and balances representing the distribution of society’s wealth among its population. What we see in terms of the exchange of coin and currency are, within this framework of understand money, merely a means of settling accounts and making transfers between different balances—money as a means of payment.

Such ideas, which are known generally as the credit (or debt) theory of money, were most thoroughly put forward by the early–20th-century British economist, Alfred Mitchell Innes, and are supported, according to David Graeber in his book Debt: the First 5,000 Years, by modern anthropological evidence.

According to Innes and Graeber, our modern conception of money—as outlined in academic textbooks—is fundamentally based on a myth: the “myth of barter,” as Graeber describes it, which has spread into the popular imagination and consciousness as a result of the works of the classical political economists, such as Adam Smith and David Ricardo, and before them the theories of the English empiricist, John Locke, and even the ancient Greek philosopher, Aristotle.

For the classical economists, money was primarily considered a means of exchange—a single commodity that rises above all others to become universally accepted in order to facilitate trade. The use of a particular commodity as money, such as gold, lay in its own high value density. Before money, the story goes, there was no way of trading other than through barter. This clearly posed problems, since it would require both that individuals with mutually reciprocating needs crossed paths, and that traded goods be carried around, ready for exchange. Hence the invention of money, to overcome the barriers of barter, and extend both the variety of goods that could be exchanged and the distance over which they could be traded.

The problem, Graeber notes, quoting the Cambridge anthropologist Caroline Humphrey, is that “No example of a barter economy, pure and simple, has ever been described, let alone the emergence from it of money; all available ethnography suggests that there never has been such a thing.” (Graeber, op. cit., 29.)

It should be noted, however, that this anthropological narrative of the “myth of barter” is based on the search for a barter economy—that is, for a community in which the internal exchange of goods through barter took place. But as Engels (and Marx also) noted, the development of commodity exchange through barter does not initially occur internally within the community, but externally, at the edges where different tribes interact. It should come as no surprise, therefore, that “no example of a barter economy” can be found historically.

For those putting forward the credit/debt theory of money—in contrast to the classical economists and their commodity theory of money—the main role of money is not as a means of exchange, but as a unit of accounting. In this modern age of capitalism, with its highly developed credit system, fractional reserve banking, and electronic transfers, the idea that money is more than just the coins and cash in circulation may seem obvious. But at the time of Smith, Ricardo, et al., such an idea was not considered a self-evident truth. Even today, there are those who—looking around at the collapse of the financial system in the wake of the 2008 banking crisis, not to mention the ever-inflating credit bubbles and printing of money through quantitative easing that continues today—understandably call for a return to the gold standard in order to restore calm and order to the global monetary system.

As a means of accounting, then, money is primarily a system of credits and debts. As Graeber emphasizes, “We did not begin with barter, discover money, and then eventually develop credit systems. It happened precisely the other way around. What we now call virtual money came first. Coins came much later, and their use spread only unevenly, never completely replacing credit systems.” (ibid, 40.)

Felix Martin highlights two examples in Money: the Unauthorised Biography to stress the point. The first is the case of the people of Yap, a remote and secluded island in the Pacific. An American anthropologist called William Furness, visiting Yap in 1903, was amazed to discover that the small island’s economy consisted of only a few traded commodities; and, more importantly, there was neither barter, nor any currency acting as a means of exchange. Instead, Yap had a highly developed monetary system involving large stone wheels called “fei,” up to twelve feet in size, which were used to represent and account for the various amounts of wealth held by individuals within the community.

Notably, Martin says, Furness “observed that physical transporting of fei from one house to another was in fact rare. Numerous transactions took place—but the debts incurred were typically just offset against each other, with any outstanding balance carried forward in expectation of some future exchange. Even when open balances were felt to require settlement, it was not usual for fei to be physically exchanged.” (Martin, op. cit., 4.)

“Yap’s money was not the fei,” Martin continues, “but the underlying system of credit accounts and clearing of which they helped to keep track. The fei were just tokens by which these accounts were kept.” (Martin, op. cit., 12.)

Closer to home, Martin provides another example of such credit money in the form of “Exchequer tallies”—wooden sticks used in England between the 12th and 18th centuries to record payments either to or from the state. Such sticks would be split down the middle, with the creditor and debtor keeping one half each as a receipt of the payment. Notably, the creditor’s half could be used as a means of payment—a form of financial security, exchanged with another individual to settle an unrelated debt.

It wasn’t until 1834 that these Exchequer tallies were finally abolished, replaced by the Bank of England with a system of paper notes. Those tallies that remained were burned and destroyed, leaving little evidence of their existence behind. For similar reasons, Martin notes, the physical evidence for all sorts of monetary systems throughout history—and particularly credit systems involving written accounts—may have been lost to us forever, with only the hard currency of coinage surviving today. As a result, both Martin and Graeber hypothesize, we are left predominantly with a concept of money that emphasizes tangible commodities, such as the precious metals.